Welcome to Lifco Q2 report for 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to CEO Per Waldemarson and CFO Therése Hoffman. Please go ahead.
Thank you, good morning, everyone, and welcome to the Lifco Q2 presentation. We can start with going in directly into page two in our investor presentation, and have a look at the high level of overall second quarter figures. If we start with the net sales numbers, we're growing net sales with about 13%. In this quarter, we actually had a slight negative organic development of -1%. I will come back to that in a moment. We had acquisitions that positively contributed net sales with about 13%, and then we had foreign exchange, also positive, and then a small divestment in those numbers.
The reason for the slight organic drop in this quarter is mainly to do with the slightly lower volumes in our Demolition & Tools segments, and also in certain parts of our Systems Solutions, we have some more project-related business that had a slightly weaker sales than previous years, and this is a business that typically can be volatile between quarters and even years when it relates to more project-related business, not so much related to the overall underlying demands. If we go further and look at our EBITDA, we're growing with 22%, which basically means that we have a very strong margin development in most of our companies, and also better growth in the high-margin companies. So there's also some mix effect that's basically contributing.
The demand is strong in the more high-margin business. Going further down, we are growing profit for tax with about 15%, which, of course, interest rates are now, as we all know, going up rapidly, and this has quite immediate impact on Lifco, giving our variable interest rates up. Then we are growing our operating cash flow with about 27%, which is quite okay, but we have still not yet seen any major release of the inventory situation. This has to do with a lot of companies still being quite busy and also some still some challenges with the supply chain.
Of course, not as dramatic as it was 12-18 months ago, but there's still challenges in that, in that area. With that, we can go into page three and just briefly look at each business area. If we start with the Dental, it's, I would say, a quite normal quarter for us. Things are stable for the most part and small margin improvement, sales growth of 12%, partly related to a sort of weaker situation last year. In the quarter, we still have some issues in part of our Dental business due to COVID issues in China. That's basically been normalized now for the last three quarters, so it's a quite normal situation in the Dental business area.
If you look at Demolition Tools, more specifically, as you all who follow us have seen, we have had a period for the last three years with very dramatic demand increases following the pandemic, led to extraordinary high order intakes in 2021 and early 2022. Then we have now been in a situation for quite some time, for a number of quarters, with more, I would say, normalized situation of demand and still on good levels if you look on the relative historical long-term perspective. Yes, but now we are now, after a period of time of more normalization coming down, and in this area, we had a slight organic decline than in this quarter.
Fortunately enough for us, the high-margin part of the business is performing well, so we have a positive mix effect, which led to very good margins also in this quarter. So we have, I think, a record margin here of 28% in Demolition & Tools. I would also like to mention that we have also done a few acquisitions here that also contributed positively on all dimensions. If we go down to the third area, Systems Solutions, overall, it's a very strong quarter. I think the slightly maybe lower sales development is mainly due to a few companies that are more specific issues related to projects that can come and go, a little bit more volatile.
Most part of our portfolio here is still performing well and meets, you know, strong and stable demand in this quarter. That's basically why we are then growing profit a lot. The companies that are doing a bit weaker sales here are also typically lower-margin companies in this case area. Also in this area, we have record high margins of 24.6% in this quarter. I think it's also worthwhile mentioning on this slide that, you know, Lifco has a portfolio of very niche, different, highly differentiated companies. We have a strong margin potential, and it's very pleasing to see now in the last, I would say, 9-12 months, that the margins are now where they should be, and they're going in the right direction.
After a period of time of lagging behind in the 2021, basically, when it came to margin. If we then go to page four, we actually don't have updated data. We update this slide only once per year, but I can mention after halfway into the 2023 year, we are still performing very well on the organic dimension. The EBITDA growth, as you can probably understand from the module expansion we had, is still very strong, both organically and from acquisition. It looks like also 2023 so far is a very good year in terms of organic development.
As you can see here, the average organic EBITDA growth has been 8% per year since our IPO, and so far this year, it looks very promising also when it comes to our most important or one of our most important targets is to grow organically our profit. Then we can go into page number six. Just talk a little bit more about the balance sheet. We are basically having the same relative balance sheet that we had one year ago, despite quite a number of acquisitions and also dividend being paid out, we have the same net debt, EBITDA, of 1.9. If you include, you know, all the option agreements, future option agreements, and also the IFRS 16 leasing.
If you look at the interest-bearing debt only, we are at 1.3, which looks also the same number we had one year ago. Here, typically, in the second quarter, where we pay also dividend, it's normal that we have an increase in net debt, and we also have that in this year. That's more of a seasonality effect when it comes to that number. You know, with this type of balance sheet, it means that we still have a, you know, good financial capacity to continue the acquisition, which are also done quite a number of already this year. Then we can move quickly into page number seven, I just want to give the perspective on the long-term development of Lifco once again.
Our margins are very good in this quarter. I also want like to pinpoint or highlight that this is a typical key focus area for us. We have a strong focus for improving our profitability in all our existing companies, through a lot of, you know, organic development and making our more products more differentiated and basically making the most of our potential in those companies. We've done that for quite a number of years. We also complement that with acquisitions. That so far, on average, has helped the margin development as well, which basically means that we are very picky when it comes to the quality of the business we acquired.
We like companies that are highly differentiated and have a strong, proven position, with high margins. We can move all the way down to page number 31 and just have a little bit quick look on our acquisition that we have basically signed and press released this year. As always, it's a mix of, you know, small, very high-quality companies in various niches, in all areas we have also acquired in this years and also in various countries out in Europe, which you've seen now for a number of years. That's our core focus. The basically, the acquisition volume this year has been already almost the same level as previous years.
A good start to the year when it comes to acquisitions. With that, I'd like to open up for any questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Carl Ragnerstam from Nordea. Please go ahead.
Good morning. It's Carl here from Nordea. A couple of questions from my side. Looking into demolition, you said that organic growth obviously turned negative in the quarter. Is it possible to give any more flavor on which sub-segments or geographies this is due to? Also whether you have seen any sort of accelerating trends during the quarter, where perhaps the start of the quarter was better and the worse in the end, or?
When it comes to geographies, I think it's, you know, I think I mentioned in previous calls that, you know, the weakest one of the weakest areas is probably the Nordics or Sweden when it comes to the construction-related segments. For Demolition & Tools as a whole, that's a relatively small part of that area. If you take the main markets out in Europe and also in North America, it's been, I don't think there's any specific thing I would like to highlight when it comes to that. The second question regarding, you know, I don't there's nothing to comment regarding different months in the quarter.
You know, the most important message here is that we had very strong order intake and extraordinary strong order intake during a period of time leading up to somewhere around the, you know, March, April 2022. Since then, we had, you know, if you look historically, we have order intake on solid levels, and especially for companies with shorter order books that have more relevant measurement of order intake, it's been on a stable level. Then, you know, in any given quarter, you know, you can have certain effects that leads to a decline in organic sales.
I think as I mentioned before, maybe the main message that we had stronger development in sales in the more high margin business and a little bit less in the low margin. That's maybe indication that the lower margin maybe is then maybe going more purely into some construction later, whereas the infrastructure and more of other things are going into other products. I think I don't want to make too big of a statement around that. It's more, you know, related to a general situation where the sort of market was crazy until early 2022, and now it's been on a solid high level. We are meeting, of course, very high comparables in many companies.
Is it possible to give, try to quantify the order intake in Demolition at all? Or is it, would you say that it's fairly on par to the organic sales drop during the quarter in that range?
I think now, you will. Now, as I mentioned before, I mean, there was a time when we did not trust the order intake numbers in 21 because, you know, there were a lot of queuing tickets, I call it. People put orders in to be first in line, not maybe, not knowing the end user. We talked about OEMs and distributors. I think we're now reaching a point where it will be more visible, the sales numbers, and there will always be some lag, but the lag will not be like it was back then, so to say.
Mm.
We're reaching a point that, you know. It also means that, you know, predictability is, of course, going down like it was pre-COVID levels. You know, we wouldn't maybe know the next month or next two months, but we don't know three, four months out. It means that we don't know the demand situation for the next, you know, three, four months ahead of us, which is normal and how it was. We're reaching that point now in many of our companies.
Okay, very good. Also in Dental, I mean, with a slightly squeezed consumer currently, have you seen any shifts in demand between various products categories, for instance, where one could be cutting back on sort of more maybe nice to have or more extensive procedure as well? Maybe because human body is delivering a bit better. Have you seen any trends at all in that segment?
I mean, I think Lifco, our exposure is more related to number of visits in Dental clinics. I don't think our profit generation is so much demand depending on what type of treatment is done. Of course, there's always, you know, some of that, but on average, we are more related to the activity level in Dental offices. If they do, you know, it's a relatively small impact to us, you know, how, what type of treatment that's carried out, for the most part. That's also true even within. You know, if you look at all our manufacturing companies and all our distribution companies, that's, you know, it's not, you know, we're not making profits on, you know, very expensive treatment methods.
It's quite, you know, normalized or normal dental visit that our products go into. When it comes to prosthetics, of course, you know, you can argue that, you know, the more complicated, the more sales and more profits we get. On the other hand, we are also operating in a segment where we have a cost advantage towards competition. We're also offering an attractive product there, which will not have any impact in any, you know, short-term impact. These are more very slow-moving trends, just to make that clear as well. The potential benefit we have in our offering there will not be, you know, dramatically changing in from one month to the other and so forth, depending on consumer behaviors.
Okay, very good. Thank you.
Thank you.
The next question comes from Karl Bokvist. Please go ahead.
Yes. Hi, thank you. Most of the questions that I was curious about have been answered. Within System Solutions, you do highlight a couple of comments around the growth areas in the different segments. Do you feel there is anything on a kind of quarterly basis worth highlighting in terms of change in demand or growth? I think you mainly refer to kind of a first six-month period.
No, I think the comment there, you know, quarterly basis is quite difficult. I mean, there's nothing in this quarter that changed so much in my view, basically. Things are basically the trends that we've been seeing now since the last 12 months is the same. Which basically means that many of our companies are seeing still very good demand. There's a few companies in certain subsegments that have a, you know, slightly weaker situation, but they have, you know, they've done a really good job to compensate and increase their margin anyways. That's a relatively small part of this. Then you have these, you know, two examples of companies that maybe have a more volatile sales profile that impacted sales more than profits because they are lower margin.
I don't think there's so much to comment on the quarterly basis around that. For the most part, Systems Solutions is performing very well, and most companies are having a good development. As you can imagine, visibility here is, of course, not extremely long. We don't know. It doesn't mean that we know how it's going to be in six months from now, I think, you know, so far, most of the companies are seeing solid demand and good margin development.
Understood. You did mention some areas about Dental sort of being back to normal. In terms of the potential profitability, mix effects from the prosthetics business and so on, would you say that that profitability effect is also now back to a normal situation, so to say?
Yes. I mean, in any given quarter, there's always many things that happen in the portfolio like Lifco, but for that part, this business is performing as it should be performing now. in the last two quarters, and even, I think, even in, if I remember correctly, even the last quarter last year. It's been quite normal for nine months in that business.
All right. And my final one, this I understand it's mainly done out at the kind of company level, but working capital development, anything worth highlighting here in case you see a kind of more normalized order patterns and so on? Could we start to see less safety stock in those sorts of aspects, thereby helping in working capital effects into the second half?
Well, here is I think it's very much down to each individual company in Lifco, how we operate now. Some companies are still, you know, working with the, you know, supply chain issues and, delivery problems to customers, and they are not in the mood of maybe reducing inventory, whereas others are now in that phase of, you know, getting the inventories slightly back to normal. That's basically where we stand right now. As I think I pointed out already in the last, in the course last year, that this will not happen dramatically. It will be sort of a slow progress into normality because supply chains are not perfect yet.
I mean, they are definitely better than a year ago, for sure. Also some companies are in a situation where it's not been so easy to focus on that, given that they're still focusing on getting things out to customers. Others maybe should improve quickly on that. We have quite different approach to different companies.
Understood. That's all for me. Thank you.
Thank you very much.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay. Thank you very much for listening, and thank you for the questions, and, I wish everyone a nice Friday and eventually a nice weekend. Thank you very much.